Report on Benefits to COMARA Board of Directors

Jack Hannon February 7, 2014

Well, the period for annual health care elections has come and gone, everyone seems to have made their choices, and no complications seem to have developed. For many, it offered a continuation of existing benefits at very modest increases in price, this despite the fact that some pretty major elements of the Affordable Care Act were first coming into effect as of the start of 2014. But note that Lockheed Martin's retiree healthcare plan was "grandfathered" on the issue of ending the "lifetime maximum" payout, and so we remain subject to a $2million maximum. When I checked, though, having had two hospitalizations totaling 3 weeks in 2012, and all sorts of expensive tests, I had only used $60,000 toward the lifetime maximum. So I may never get there You're not likely to either.

The Washington Post published an article January 3 indicating that corporate pension plans were "at the strongest funding in years," such that many companies may decide it's time to get rid of their pension obligations altogether while the funding is at or above 100% of their obligations. The two most common ways of doing this, according to the article, are making lump sum payments to retirees in full satisfaction of the pension obligation, and transferring the pension liability and a negotiated amount of the "pension funding" to an insurance company.

According to Rich Lustig, a recently retired former Senior Director of Lockheed Martin's Benefits Dept., the first alternative, paying out a lump sum to each retiree, is rarely utilized by large companies. And of course Lockheed Martin is a very large company.

The second alternative, transferring the pension liability, if you will, to an insurance company, is growing increasingly common. The insurer assumes or purchases some or all of theof the pension plan liability and that amount of reserve funds negotiated between the former company with the pension obligation and the insurer, and then the insurer manages the money and is obligated to fund the monthly pension benefit. The insurer is of course is still subject to federal regulation under ERISA. According to Rich, such transactions are assumed to represent a "neutral" situation to retirees, that is, we would emerge from any such transfer of Lockheed Martin's pension obligations to an insurer no worse off.

I am reluctant to question the new Lockheed Benefits Manager about this lest I put ideas in his head. This is probably a remote possibility, but since Rich's thesis is that any such move would be a "wash" for us, I am keeping a low profile for now.